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Capacity choice in a duopoly with a consumer-friendly firm and an absolute profit-maximizing firm

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  • Nakamura, Yasuhiko

Abstract

This paper studies a capacity choice problem in a duopoly with substitutable goods that is composed of one consumer-friendly firm and one standard absolute profit-maximizing firm in the contexts of both quantity competition and price competition with substitutable goods. In this paper, we assume that the consumer-friendly firm maximizes the weighted sum of its absolute profit and consumer surplus. We show that in the quantity competition, for the consumer-friendly firm, under-capacity is chosen when the extent of the importance of consumer surplus to the consumer-friendly firm is high relative to the degree of product differentiation, whereas over-capacity is chosen otherwise. Moreover, we find that in the price competition, the consumer-friendly firm chooses over-capacity when the extent of importance of consumer surplus to the consumer-friendly firm is high relative to the degree of product differentiation, whereas it chooses under-capacity otherwise. Furthermore, regardless of the extent of the importance of consumer surplus to the consumer-friendly firm and the degree of product differentiation, it is shown that in the quantity competition, the absolute profit-maximizing firm chooses over-capacity, whereas in the price competition, it chooses under-capacity.

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  • Nakamura, Yasuhiko, 2014. "Capacity choice in a duopoly with a consumer-friendly firm and an absolute profit-maximizing firm," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 105-117.
    • Handle: RePEc:eee:reveco:v:34:y:2014:i:c:p:105-117
    DOI: 10.1016/j.iref.2014.07.004
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    Cited by:

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    3. Juan Carlos Bárcena‐Ruiz & Amagoia Sagasta, 2021. "Cross‐ownership and corporate social responsibility," Manchester School, University of Manchester, vol. 89(4), pages 367-384, July.
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    6. Seung-Leul Kim & Sang-Ho Lee & Toshihiro Matsumura, 2019. "Corporate social responsibility and privatization policy in a mixed oligopoly," Journal of Economics, Springer, vol. 128(1), pages 67-89, September.
    7. Junlong Chen & Chaoqun Sun & Jiali Liu, 2022. "Corporate social responsibility, consumer sensitivity, and overcapacity," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(2), pages 544-554, March.
    8. Arturo García & Mariel Leal & Sang-Ho Lee, 2019. "Endogenous Timing with a Socially Responsible Firm," Korean Economic Review, Korean Economic Association, vol. 35, pages 345-370.
    9. Quan Dong & Juan Carlos Bárcena-Ruiz, 2021. "Corporate social responsibility and partial privatisation of state holding corporations," Journal of Economics, Springer, vol. 132(3), pages 223-250, April.
    10. Wang, Yadong & Wang, Delu & Shi, Xunpeng, 2021. "Exploring the dilemma of overcapacity governance in China's coal industry: A tripartite evolutionary game model," Resources Policy, Elsevier, vol. 71(C).
    11. Lee, Sang-Ho & Xu, Lili, 2017. "Tariffs and Privatization Policy in a Bilateral Trade Model with Corporate Social Responsibility," MPRA Paper 82042, University Library of Munich, Germany.
    12. Benchekroun, H. & Benchekroun, S., 2015. "Harvests' lifespan and North–South market share rivalry," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 114-124.
    13. Bárcena-Ruiz, Juan Carlos & Sagasta, Amagoia, 2021. "Environmental policies with consumer-friendly firms and cross-ownership," Economic Modelling, Elsevier, vol. 103(C).
    14. Nakamura, Yasuhiko, 2015. "Endogenous choice of strategic incentives in a mixed duopoly with a new managerial delegation contract for the public firm," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 262-277.
    15. Flores, Daniel & García, Arturo, 2016. "On the output and welfare effects of a non-profit firm in a mixed duopoly: A generalization," Economic Systems, Elsevier, vol. 40(4), pages 631-637.

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    More about this item

    Keywords

    Capacity choice; Consumer-friendly firm; Quantity competition; Price competition; Extent of the importance of consumer surplus;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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